Of FDI ranking and the country’s status

Bangladesh has advanced to 114th position in global Foreign Direct Investment (FDI) ranking from that of 119th in 2010, according to World Investment Report (WIR) of a United Nations agency released this week. Obviously there is much to rejoice over it. But there is another report that gives a disconcerting note -- the country still remains at the bottom of the table in terms of absolute amount of FDI inflow.

In 2010, most foreign investments in Bangladesh have been made for acquisition of older assets rather than setting up 'greenfield' companies. It is a known fact that FDI flow for acquisition boosts a country's status, but it is no denying that, that by itself does not increase the size of its economy or add much new to its existing capital stock.

According to the report, telecom sector alone received $360 million FDI, while the manufacturing sector $238 million in investment from abroad. Some $415 million have poured into the textile and clothing sector, while leather and leather products sector got a very small amount of $46 million in 2010.

The Board of Investment (BoI) chairman has some reasons to be upbeat about the flow of FDI. He has, thus, noted that Bangladesh has done well in terms of FDI inflow compared to that of some neighbouring countries like Nepal and Bhutan. Furthermore, FDI flow to India and Pakistan, as he has pointed out, declined more, in percentage terms, in 2010 when it improved in Bangladesh the same year.

According to Bangladesh Bank survey, the FDI flow was on a steady rise from 2001 to 2005 in Bangladesh. It rose to $1086.3 million in 2008 but slumped to $700.16 million in 2009 and again increased to $913.32 million in 2010.

New investment in 'greenfield companies' generally broadens the size of a country's economy. Bangladesh did not get such investment in the year under review. In fact, there were severe supply shortage of electricity and gas in the country. Scores of industries set up by domestic entrepreneurs, were awaiting gas and power connections. The government put new power and gas connections on hold, following shortfall in supply of the same a couple of years back. Foreign entrepreneurs could not come in a bigger way due to this problem. The government, however, resumed giving gas connections to the industrial units in a limited way from last month. It is not known when all the waiting units will get gas connections.

However, availability of land for public and private sector industrial projects has emerged as a major challenge for getting FDI. Soaring prices of land and subsequent hassles in its acquisition are deterring the inflow of foreign investment and the expansion of local industries as well. The land issue has made the country's development challenges more critical.

Two other challenges are also confronting Bangladesh -- upgradation of its infrastructure and how to develop a large and skilled workforce. Moody's investors services that rated Bangladesh Ba3 for 2011 recently found that land acquisition in the country is problematic and the registration is in need of reform. Moody's says these impede quicker realisation of larger inflows of FDI.